{audio:0:00:03} Let’s say it’s pre-internet, 1990 and I’m selling my £200,000 house. What was that old process?

{audio:0:00:15} The research phase of estate agency pre-internet was very different. There were two elements to that research phase: what and where am I going to buy; and what am I going to get for my money? That was a very labor intensive journey of trawling through print, either newspaper or property magazines and travelling to estate agents, building relationships, getting yourself on mailing lists and it was quite hard work to understand the available inventory in estate agency in the UK.

{audio:0:00:55} Then the second side was, what’s the best route for me to sell my own property? Typically, three or four valuations from estate agents, lots of challenging questions to understand the dynamic. It’s slightly different today but people generally only moved every seven or eight years back in the 90s. It’s a little bit longer now, it’s 11 or 12 years, but it’s still the same sort of emotional decision-making process that you went through in terms of, am I going to sell my own home if I put it up for sale? Am I going to get a price? How am I going to be able to find somewhere to move to? I don’t really know what’s going on here; how do I build a relationship with an estate agent that I can trust?

{audio:0:01:43} That’s why it was very common for the estate agent that you found a house with to be the one that sold your property, and it became particularly relevant to build really good relationships focused on the human factor involved in the transaction. Estate agency, certainly in the 80s and 90s, was about personalities and people that had the skills to develop relationships and trust quickly and give consumers the confidence that they were the best people to represent them in a transaction, that was pretty significant in their financial life, but also something that wasn’t particularly common.

{audio:0:02:36} If I was selling my house, I would go down the street, find the estate agent branch, try and build a relationship with the agent and trust him or her enough to list and sell my property?

{audio:0:02:49} Correct, yes. Typically, you were out looking for a property and, in the process of looking for a property, you connected with an estate agent that just dealt with you in a way that you were comfortable with and, therefore, became the agent you chose to sell your house.

{audio:0:03:06} How would you look at the core responsibilities of the agent back then?

{audio:0:03:16} I think the hand-holding and educational element that was required back then was a very significant part of how estate agents won in the 90s. If your arena to compete and to be a serious player within the market was defined by anything, it was defined by your ability to engage with customers more often, more effectively and more meaningfully than your competitors.

{audio:0:4:05} Was it a typical journey where the agent would win the relationship, list the home in print channels and then the branch network would deal with all the back-office process and admin work?

{audio:0:04:22} Yes, pretty much. It was much more reliant on the telephone and a paper driven CRM approach. I showed somebody around a £200,000 house yesterday; they didn’t like it because the garden was too small and your £200,000 house that comes to market today has got a bigger garden. That’s the human intervention that can connect those two events together. Doing that well in the 90s was absolutely the difference between success and failure.

{audio:0:05:00} Was that hand-holding really crucial because there was a lack of information in the market or just because humans are very emotional around such a big purchase, anyway?

{audio:0:05:10} It’s difficult to comprehend but there wasn’t a single, aggregated view that you could look at. Even as the estate agent, if I’m coming to value your property today, I go on to the agent tools that sit behind Rightmove, that sit behind Zoopla. They give me really clever, powerful and illustrative comparison reports that I can take with me and I can sit down with you and say, here’s the report, it’s got properties like yours that have been sold. It’s got properties like yours that came to market that didn’t sell. We can see the length of time here that they’ve taken to find a buyer and, therefore, I can advise you with some really solid facts as to what is the right route for you, based upon your circumstances.

{audio:0:06:10} You go back to the 90s, we used to pay £100 a quarter for somebody to bring in an alphabetical, road-by-road printout, of all the properties that had been on the market the previous three months. So if you were going to value 27 Acacia Avenue, you went through that printout to see if it had been on the market. You couldn’t take it with you to go and show the owner, but at least you knew that number 27 had got three bedrooms and it was on the market in 1992 for £x.

{audio:0:06:49} That ability to have to hand genuinely interesting and trusted information for the consumer was very different. So yes, there was a genuine attempt to educate the vendor and, therefore, you needed to build trust and you needed to spend time and establish who were the people that you could win with.

{audio:0:07:17} The marketplace was different, as well, for most of the 90s where it wasn’t unusual for an estate agency branch to have 150 to 200 properties on their available register. Typical inventory today in the UK is 32 properties per branch, so a very different experience but very different for both the consumer as well as the agent.

{audio:0:07:49} Why is there such a big decline in properties per branch?

{audio:0:07:53} Partially it’s different because estate agency fees have gone up, so the estate agency business model can handle fewer properties to be profitable. It’s also partly different because those branch relationships aren’t so important and the physical locations aren’t as important as they used to be. Because you’ve got that aggregated view on Rightmove, the consumer can now sit in their own living room on the sofa at night-time and see every single property that’s up for sale, so the role of the estate agent is easier to replicate. The barriers to entry are far less and, therefore, the independent estate agent is on the rise. That means there’s fewer properties per estate agency branch.

{audio:0:08:43} If you can imagine, as a consumer, you could go to an estate agent that’s got 100 properties and you tell them that you want a three-bedroom semi, they’ve probably got half a dozen properties that you can choose from. Now, if you go to an estate agent and say, what have you got that’s three bedrooms, you might only have one or two properties that they’ve got available for you to look at. It’s not just that the portals have given the consumer a better experience there; the portals have meant that the estate agency experience is less interesting because I’ve come to talk to you to see what you’ve got and you’ve got far less than if I’ve spent some time on the portal, so I’m not going to bother coming in again. I’ll trust the portal to tell me all the information in one place. It’s become much easier, as a buyer, to be estate agency agnostic and just find a property with whichever estate agent has got it up for sale. It doesn’t really matter; it’s the property that you want. It’s much easier to select that property and go through that transaction without visiting a physical location and without interacting with the estate agent at all.

{audio:0:10:01} You mentioned the agency fees have increased since the 90s to today. What was the structure back then?

{audio:0:10:09} It’s partly increased because the average property price has gone up. If I back to my traditional high street days in the 90s, typical commission would have been 1.75%, subject to a minimum fee of £1,200. We were probably getting £1,500 per transaction, with an average property price of maybe £100,000. Back then, I was in the Midlands, so that average property price back in the 90s meant that, actually, the available revenue to estate agency was very different to today.

{audio:0:10:48} Roll on to 2015, 2016 when I was last on the high street, the average estate agency fee is £3,000 outside of London, £12,000 in London and £20,000 in prime Central London. That average fee has grown significantly in that time.

{audio:0:11:11} So the actual ability for agencies to earn money has decreased due to the portals, given that aggregated view of the market.

{audio:0:11:28} Yes. It’s much broader than that in terms of the estate agency pressure. The online agents are given the weight of blame for an erosion in fees in the UK and, typically, the average fee has fallen from 1.5% to 1.1%. So when you think about online estate agents taking 5% market share in the UK, it’s typically a million transactions, so 50,000 of those transactions are now happening with online. If you stayed at that £3,000 average fee that’s come out of estate agency revenue in the UK, you’re looking at £450 million worth of revenue that’s come out of UK agency.

{audio:0:12:27} If you have a look at the fee degradation that’s happened on the back of that, as agents drop their fees from 1.5% to 1.1%, 0.4% less, the average price in the UK is just under £300,000 so they’re charging £1,000 to £1,200 per transaction less than they were on the 950,000 transactions. That’s £1 billion worth of revenue that’s come out of estate agency pockets. The impact of revenue degradation is not necessarily something you’d put on the portals. It’s definitely something to do with the disruption in the marketplace, driven by a new entrant, who’s very clearly come to disrupt but also driven by an industry that has struggled to be able to build a reputation. It’s still one of the five least trusted professions in the UK. I think it’s a real shame that the response to that threat has been for estate agents to drop their fees, to charge less, when actually, the opportunity from my perspective was to professionalize, to think about a differentiated proposition that could genuinely be articulated against a new boy disruptor. Unfortunately, UK estate agency hasn’t taken the opportunity to think about the customer and how it can make it better. Actually, it’s fought for rich revenue and created a lot of pressure.

{audio:0:14:08} Internally, the UK agents, they don’t see that Rightmove have had a role within that part of their business models. They see that Rightmove’s pressure on their business models has been to up their fees year after year after year. The typical estate agent in the UK is paying £1,500, per branch, for their Rightmove subscription. There are lots of different views around that. For me, it’s still very similar to the typical print spend that an estate agent would’ve had in the 90s and early noughties. You were spending £300 to £400 a week on a page of print advertising which would’ve been the norm in that period of time. Rightmove’s £1,500 a branch doesn’t feel particularly out of kilter for what it’s replaced, but their approach to driving subscription rises and the relationships they’ve got with the agents, makes them a very easy recipient of the agent’s anger when, actually, there’s a lot more to it than the Rightmove subscription.

{audio:0:15:17} Can we talk about the buying process today? I’m selling my £200,000 house. What do I do today? I’ve got the Purplebricks option online. Do I go on Rightmove for a quick valuation? What’s the typical journey for a sale?

{audio:0:15:34} Typically today, people are educating themselves within the marketplace for six months before. They then get three valuations on their property and they select an agent in the same way as they did. Their experience of those agents is very different to what their experience of the estate agents would have been in the 90s because they’re not physically visiting. Quite often they’re not even engaging with those estate agents, either physically or over the telephone, but they are starting to build an understanding of the landscape that they’re in.

{audio:0:16:15} That aggregated view that you get to see where you go to Rightmove, you put in your £200,000 budget, you have a look at what properties are available and you are conscious of the quality and the presentation of properties, you’re understanding the branding, you’re understanding the agents that are dealing with properties like yours. The data that’s available to the consumer and for the estate agent is very different to what it was back in the 90s.

{audio:0:16:41} The physical visit of the valuation is still a very significant part of how the consumer is selecting that estate agent. Purplebricks and other online estate agents have definitely created a new market in people putting their properties up for sale before they even have the valuation, so 10% of onliners’ instructions are people that haven’t had a valuation. They know what price they want to put their property on the market for and they’re going into an online customer journey that enables them to put their house to market without any interaction with an estate agent at all. That’s a small proportion of the market, although I do think that will grow.

{audio:0:17:31} Where the portals have got work to do, in my view, is that the buy side experience from a customer’s perspective is pretty clunky. I go into a portal, I tell it I’m looking for properties up to £200,000, I find properties that are of interest to me and then the Rightmove and the Zoopla call to actions are pretty, pretty weak in terms of a digital experience. Contact the agent, request the details. 60% of Rightmove traffic is between 6pm and 10pm. The estate agent is closed, so actually, you’re getting full stops on those digital experiences at that stage. Definitely a very significant part of Purplebricks’ model that was underestimated by all of the competitors, was that that digital enablement for the customer to be able to fulfil their basket ambitions on site is very interesting to the consumer. It’s what the consumer wants, so that DIY capability made a big difference.

{audio:0:18:50} Purplebricks allow you to arrange a viewing online. You can select your appointment; that was a big win. I’ll just talk you through that online journey. If you were a consumer looking online at 6pm to 10pm, you could make a viewing appointment. You could probably go and view the property the following day. The estate agent doesn’t need to interact at that stage. 55% to 60% of all online estate agents’ properties are viewings conducted by the owner.

{audio:0:19:22} Then it isn’t unusual for the potential buyer to make an offer through the app. The offer is then received by the seller and, in over 40% of cases, the seller is making a decision on that offer without interacting with the agent. Typically, that’s because they’ve got an asking price offer. There’s a really interesting debate around, is the estate agent adding value in the negotiation process to get the best price? For me, there are no doubt times when that is the case, but also, what I believe was happening at Purplebricks, is that if the buyer knows he’s making an offer straight to the seller, he’s much more likely to make an offer of the asking price because he hasn’t got that intermediary to tell a story too.

{audio:0:20:11} “I like the house, but I’m going to have to change the kitchen. That’s going to cost me five grand and there was one round the corner that was a little bit cheaper so I’d like to make an offer”. You don’t get an opportunity to tell that story, so that ability to leverage the human relationship – particularly with the British public – somebody to tell somebody that I don’t think your house is worth the asking price, it’s uncomfortable. That capability, digitally, to fulfil the journey in estate agency is still relatively new. It’s driven by the onliners. For me, it creates pressure with the portal to respond. I think the portal traffic is fantastic to have that aggregated whole of market view, but it’s a pretty weak experience from there in terms of fulfilment. I think that will see a lot of dynamic change over the next two or three years, both in existing portal environments but also in the challenges.

{audio:0:21:18} You mentioned 10% of sellers on the online players placed their house without a valuation. Is that with high intent that know the value they want to get and need to get out quickly? How do you look at how that could evolve, potentially?

{audio:0:21:37} I do think it’s generally an educated, decisive seller who’s really clear on what it is they want to do and they want to go quickly. There are some interesting dynamics here. 93% of UK estate agents don’t advertise how much they charge to sell a property, so you don’t actually know what Foxton’s fees are. It’s not advertised on their site; that’s the same with 93% of UK estate agents. That’s because they don’t want to have to justify the difference in their charges without having that opportunity to meet you face-to-face, because face-to-face, they’ve got an opportunity to win in an emotional environment.

{audio:0:22:26} I don’t think that’s particularly significant as a challenge for agents in the current environment, but it’s a very significant challenge if consumers want to fulfil digitally. If you can’t tell them how much your product is, they cannot complete that journey, so that is a very interesting environment. The UK buy-to-let market is around 20% to 25% of property ownership. You’re dealing, generally, with landlords where the tenant has moved out. They’ve got an empty property for a short period of time. They understand the valuation or at least what they’d sell the property for, because it’s a commercial decision.

{audio:0:23:06} Being in a position where they’ve got clearly stated fees and they can put their property up for sale within 20, 30 minutes, that is a very different journey from a typical estate agency environment, particularly for those out of area landlords who are going to find it difficult to go and spend time, face-to-face, with an estate agent at the property.

{audio:0:23:35} I don’t think it’s necessarily a big play in the estate agency market, as a whole, because people are only making this move every 12 years; a face-to-face visit is still important but it is definitely an interesting dynamic. As people become increasingly used to digital fulfilment and DIY capability, I think that becomes a significant opportunity for the onliners that they’re already starting to take.

{audio:0:24:10} Purplebricks doesn’t aim to completely reduce that physical contact with the agent for sellers. It’s just there’s a proportion of sellers that have high intent, that are educated and that may choose to DIY the process online?

{audio:0:24:24} Correct, yes. Purplebricks completely understood the importance of the agent in the living room. It was a very significant part of their employment proposition, so recruiting good quality traditional estate agents, who understood what it was like to sit on sofas, making their role attractive and making the upside attractive by giving them stock in the business. That was a critical part of their success, particularly getting to scale in the early days.

{audio:0:24:53} However, what they definitely learnt with the digital environment and the journeys that customers were coming into was that the portals make other estate agency websites pretty dull and boring, because there’s one or two three bedroom semis if I have a look at my local estate agent in my local area. It’s not a great experience. I’m much more likely to go the portal. When you get Purplebricks with its massive brand awareness, driving site traffic and giving them different experiences, you see that the consumer wants something that isn’t available in the marketplace at the moment.

{audio:0:25:36} Can we walk through a typical transaction on the likes of Purplebricks or the online players? We’ve firstly seen the price and revenue per instruction increase for Purplebricks, up to £1,400, I think now. How did you look at how pricing evolved over the last five years for Purplebricks?

{audio:0:25:57} If we take the model to start with, the thought process around some of the challenges that exist in estate agency created the model. 50% of all properties that come to the market in the UK are withdrawn without achieving a sale. That’s huge wastage. The high street estate agent has a model that says there’s no sale, no charge, so if you’re one of those 50% that come to market and you don’t sell, you’ve lost nothing. You don’t need to worry about the hundreds of pounds spent on marketing so far and people’s time, effort and energy.

{audio:0:26:45} Purplebricks flipped that model on its head and said well, that means the people that are selling are covering the wastage from those that don’t. Let’s put a different spin on the model and say, if you come to market with Purplebricks you’re going to pay and then if you choose to withdraw from the market, you have the ability to come back to market. It’s a lifetime fee, so you can come back at any stage, but you’ve paid your fee up front and we’re going to take a commission from what we believe will be more certain sellers.

{audio:0:27:20} Those that are testing the market that won’t necessarily find the pay anyway model particularly attractive to their own uncertain circumstances, that’s no problem; you should go to a no sale, no fee agent and our model is going to be home of the certain seller. That gave the model a very different dynamic. It gave challenges, as well as opportunities, because the 50% of people that had paid for estate agency services had not sold their house. They were much more vociferous than if they’d gone to a no sale, no fee agent, but there was definitely a different dynamic in terms of the motivation of those sellers that came to market and there was a different dynamic in terms of the pricing of their property. That means Purplebricks sells more of its instructions than any other estate agent in the UK.

{audio:0:28:13} There’s been arguments around whether that’s actually 70%, 80% or really just industry average which is 50%.

{audio:0:28:21} It’s 100% true, the numbers. Those numbers do change over time, as I’m sure you can imagine. In 2016 it was different to 2018 and there’s market dynamics but that number, certainly in my time, has been between 78% and 85%. Those were the numbers that we reported in year-end accounts and those numbers were independently verified. They were wholly accurate. There was no doubt we understood the pressure that came from the incumbents around whether that data had the integrity that it needed.

{audio:0:29:01} That was because of the consumers, right? If you’re paying up front, you probably have some kind of commitment bias or you really want to sell your house and, therefore, you probably follow through.

{audio:0:29:14} There was definitely a natural self-selection. For me, I think the other thing that was really important was the digital fulfilment. 6 o’clock on a Friday night, I’m going to go out and look for properties. I go online, I might have sent an email to one or two other estate agents. If I’m on Purplebricks’ environment I’ve booked viewings, I can go on Saturday, I can make my offer on Saturday afternoon when the high street estate agent is closed. The ability to create customer journeys that were slick, efficient and effective in that digital environment was a big differentiator for the brand. I think we might not have even understood just how significant that was in the early stages.

{audio:0:30:06} But the natural selection, the digital environment and then the relentless nature of the business, the fact that to the local property experts, if you sat on the sofa and that person has paid you their £1,000 now – it was £795 and £899 at different stages of the journey – if you take that money off that person, they are going to come back to you if they don’t sell their house, so don’t give them duff advice. Don’t say you’ve got nothing to lose, this is no sale, no fee. Let’s try the top price that you might want. The agent behavior was very different because of the model that was created as well.

{audio:0:30:50} For me, having experienced the incumbent view of the Purplebricks model and finding it very easy to say, “Taking money up front from people? That’s going to be a really difficult sell,” actually then to move into a digital environment thinking, this is a completely different model that drives a completely different set of behaviors and a completely different customer dynamic, that is great for our reputation, as an estate agent, was very, very attractive and very, very impactful to the business, the customer and the journeys that they were going through.

{audio:0:31:29} The £1,400 revenue for instruction, is that split between a fixed fee up front from instruction and then ancillaries on top, or is that separate?

{audio:0:31:39} That includes the ancillaries. The fee has grown, over time, as the brand has become more established. It started off at £495 and we were physically taking cheques off people or getting people to make credit card payments. Another very intelligent part of the model was the introduction of pay now or pay later. So working with today’s fees of £999, you can either pay that up front or in ten months’ time; there’s no charge or interest. The only thing we ask is, if you want to pay it later, you use our conveyancers and that covers the cost we take and that did two things. One, it meant that the barrier to entry was removed from the model of having to pay up front; but it also drove conveyancing penetration and that conveyancing revenue is partly what drives the average revenue per instruction over time.

{audio:0:32:40} What also was really clear at Purplebricks is that the typical buy-side journey was very different. That meant that we needed to create some of the infrastructure required to execute on the buy-side opportunity for ancillary revenue. If you think about that Friday night, Saturday and the buyer’s done a deal, there’s no time to build a relationship and, therefore, there’s no time to introduce other services. The buy-side revenue was a significant opportunity that was under executed upon early doors. Over time, the onliners have introduced systems and processes to build relationships with buyers throughout that six-month research period that increases the propensity for a purchaser to take mortgage advice, conveyancing advice and other associated services. As that bank of buyers and that data farming becomes more effective, that’s driven the average revenue of the online estate agents to be at the sort of the numbers that they’re reporting today.

{audio:0:33:58} How do you see that opportunity to increase that revenue per instruction?

{audio:0:34:03} The brand advocacy in Purplebricks, net promoter score +80 for the successful sellers, with their journeys, they become raving fans. They’ve executed on what they’ve wanted to do for 80% of the price point with digital enablement, so that brand advocacy and experience is incredibly strong. The buy side has just had enablement that’s very different, whether it’s the ability to interact with the vendor over the app, make the offer over the app and Purplebricks, they talked about that lifetime relationship that they’ve got with those customers.

{audio:0:34:56} Whilst there’s a lot of work on building that buy side and monetizing that buy-side relationship, actually the buy-side relationship is the future seller, so you need to maintain that relationship with the future seller. On a typical moving day in a property, utilities become important and broadband is massively important now. People never used to ask whether the gas or electric was on with anywhere near the degree of passion now that parents are asking if the broadband going to be on in their new home so that they can power the Wi-Fi for the kids on moving day.

{audio:0:35:36} That ability to leverage a lifetime relationship, engage with repeat customers through a cyclical nature of household experience, the annual home insurance or energy switching, that’s a very real opportunity for estate agents in general to connect with home sellers much more effectively.

{audio:0:36:04} And it’s higher margin.

{audio:0:36:07} It’s high margin, relatively easy work that’s just data managed. It is very interesting that the in portals, Zoopla bought Uswitch. They have a very clear strategy to monetize the data that’s available within UK property. Rightmove’s revenue structure is really simple; over 90% of it comes from estate agency subscription. Zoopla has a very different approach; under 40% of theirs comes from estate agency subscription and they’ve monetized other parts of the journey.

{audio:0:36:44} They’re trying to do that by monetization for a different services model.

{audio:0:36:48} Correct. Uswitch is a really easy example. The bit that I think is indicative of the future opportunities is that, whilst Zoopla with their app understand consumer behavior, so they can tell that you’ve started looking for a property, they can tell that you’ve stretched your budget. They can tell that you’ve stopped looking which probably means you’ve either bought somewhere or you haven’t bought somewhere or you’ve decided against it, but even if you have bought somewhere they don’t know moving day. That’s the piece that’s different for the estate agent. The estate agent not only has that digital profile of the consumer journey, but they actually know that the buyer is moving into his new home on 1st September and that the new property is a three bedroom semi-detached house that’s got gas central heating, a garden, a garage, and which council tax band it’s in. That availability of information becomes a very interesting arena.

{audio:0:37:54} That scale is unique and it’s interesting how the buyer experience is so much better than traditional, as well as the seller experience. Like you said, if I’m a buyer and I go to Rightmove and I view properties, when I click through to Purplebricks on a Friday night, I get a whole inventory of properties where I can look at the application and almost have that relationship with Purplebricks where I can’t do that with a traditional agents. It’s interesting how that could be a huge opportunity to increase that revenue per instruction up to, potentially, £2,000 or higher in the future.

{audio:0:38:34} Definitely. I think, over time again, that becomes really interesting. If you take the mortgage and the remortgage, you might not sell your house for 12 years but in a 12-year period you’re going to remortgage three or four times. The value in those remortgages becomes increasingly attractive as property prices go up in the UK.

{audio:0:38:57} Most of that instruction fee is mainly from sellers today, right?

{audio:0:39:02} Yes. The instruction fee will broadly be made up of the instruction fee itself. The fact that there will be a viewing fee charged on 40% to 45% of instructions and then the ancillary revenue around conveyancing, financial services and the lifetime relationship with customer piece I think was paused. It was a program that was due to launch earlier this year. If I’m honest, I’m not up to speed with how much progress they made with that lifetime relationship but clearly now, as the biggest estate agent in the UK, there’s enough volume in that model to make that a really attractive piece of what they do.

{audio:0:39:45} Let’s say we’ve got £1,400 revenue per instruction. How does Purplebricks pay their LPEs?

{audio:0:39:53} The LPEs are paid predominantly at the point of instruction, as a fixed amount based upon the instruction itself. The customer will pay the £999 and the local property expert will be paid £150-ish of that instruction fee. They will then be paid a success fee on completion. That’s a lower amount of around £50. If the client chooses for the local property expert to do the viewings, they’ll pay a further payment which will be between £300 and £400, depending upon geography, but the local property expert will receive around half of that, again depending upon geography, but they will be the person that’s conducting those viewings.

{audio:0:40:46} Purplebricks were very open about the fact that they needed to find ways for the local property experts to earn more money. That’s where those associated products give the people on the ground that opportunity to take advantage of the growth that exists there, as well.

{audio:0:41:08} If I’m an agent, why would I join Purplebricks versus a traditional agency?

{audio:0:41:19} Firstly, the proposition. If you are part of a high street traditional estate agency environment where you won’t tell customers how much you charge, you will probably ask to charge your nan more than you charge your dad or you charge your intelligent business friends. That lack of trust is there for a reason and, certainly at Purplebricks, we are absolutely champion in the fact that estate agency in the UK needed to change and that our model was going to present the consumer with different elements.

{audio:0:41:59} The earning potential was at branch manager level, but every single local property expert became a shareholder. They had 10,000 share options in the business and a strike price depending upon where the business was when they joined. Then the territory owners, you built a reputation for yourself. You got to a volume of work that then meant that you could build a team of people that would cover a wider geography and you’ve got a career opportunity to genuinely run your own business in estate agency, without any of the outlay that you would have if you set up your traditional high street agency.

{audio:0:42:45} Do they get a base salary?

{audio:0:42:50} It’s similar to the US model where they’re independent contractors but the payment model’s different. I think Keller Williams seems to be entering the UK with this kind of franchise model. What’s your view on that?

{audio:0:43:04} I think Keller Williams and eXp have both done pretty well over the last 12 to 18 months. The environment has been opened up by Purplebricks. Keller Williams and eXp both offer the agent the opportunity to retain 70% to 90% of the commission themselves, so it’s definitely a more attractive earning opportunity per property, but the acquisition is very different, the branding support is very different.

{audio:0:43:44} You need volume, as well?

{audio:0:43:46} Yes. Purplebricks are spending £20 million a year on branding that drives leads and the valuation is provided for you. With Keller Williams and eXp, you’re keeping 70% of the fee. So if it’s outside of London you get £2,000 yourself rather than £200 for Purplebricks, for instance, to sell the property but you’re having to generate that business yourself.

{audio:0:44:11} I think there is room for both models. I think the American realtor model has done well because it professionalizes the relationship between the estate agent and consumer, so it reduces the number of customers that I need to look after to make a good living for myself and, therefore, the quality of care that I can give to the consumer dramatically improves and increases. I think the realtor model will be really interesting over the next couple of years, in terms of seeing just how well that grows.

{audio:0:44:47} If I’m a very experienced agent and I have my own book or data and deep local knowledge, I might want to go and maximize that at Keller; but for everyone else who doesn’t have that expertise, Purplebricks is probably a better option.

{audio:0:45:06} Purplebricks’ minimum experience was five years in estate agency and they only allowed recruitment to areas where you’d worked before. If you were going to be a Purplebricks agent, you needed to have five years of agency experience and to have worked in the town where you’re going to be the local property expert.

{audio:0:45:30} There is probably some truth within the summary that you gave but, for me, I think it’s more that if, as an estate agent, you’re really comfortable doing the farming and data work and relationship building and the longer term effort that’s going to give you a customer a month for the next 12 to 18 months, then you’re more suited to a Keller Williams. If you don’t enjoy that part of the work and you just want to deal with the customers that are sent your way, then Purplebricks do the branding for you.

{audio:0:46:16} Working through the math in terms of what an LPE can earn, let’s say they earn £200 to £250 per instruction on average, they’ve got to turn over a good chunk of properties a month to earn a decent amount.

{audio:0:46:34} The average number of instructions that you’re dealing with, with a Purplebricks and the onliners will be 13 to 15. You can clearly make the Keller Williams model work at a much lower number. One a week, in a Keller Williams model, is a profitable business, but remember you only get paid with Keller Williams on the ones that complete, which is 50%. With Purplebricks you get paid on everything, so there’s definitely differences between the model and I think both of them will win. They will grow market share in the UK over the next two, three years but they are very different in terms of what you’re going to get as an agent and what you’re going to get as a consumer.

{audio:0:47:18} What’s the average wage for an LPE? £45k to £50k a year, or less than that?

{audio:0:47:23} I would say the local property experts are probably averaging between £40k to £50k. The territory owners, that was a particularly attractive role at Purplebricks and most of those guys would have been doing six figures. It definitely doesn’t work at Purplebricks if you’re doing seven or eight instructions a month and the brand went through the fairly typical growth curve where retention was very, very strong for the first 12 months. Attrition was at 12% to 14%. Three years into the journey, that started to change; attrition will have gone up to 25% to 30% as the brand became clearer on where volumes lay and it organized itself to work with the better agents. That natural selection played its part in making sure that there was the right number of agents in the right places.

{audio:0:48:29} Definitely a big challenge in the Purplebricks model throughout the growth curve was, how do we make sure we’ve got enough people? So there were times where there was just so many valuations we couldn’t serve the customers. You recruited people and then you had a period of time where there wasn’t enough valuations to serve the local property experts, but whilst the business was in the sweet spot it was a very good place to be for the local property experts and territory owners, particularly in the early stages. Many of them got stock which they sold for two, three, four years’ worth of salary and they did very well from being part of the evolution, early doors.

{audio:0:49:19} As Purplebricks scale, the economics will change, correct? If you see more volume from Purplebricks, can the number of instructions that the LPEs serve increase for their territory or how do you look at the maximum scale?

{audio:0:49:37} The business recently reorganized its support structures for exactly that reason, that actually there is a limit to the number of properties a local property expert can serve. Back office support that helps with those customer journeys but operational leverage was particularly important to present the tech dynamic, from an investment case.

{audio:0:50:01} What I see happening, over time, is those local property experts developing really strong relationships in the local geographies that they become responsible for and that’s where they start to build their own support networks. So a number of them will have administrators, they’ll have PAs, they’ll have people that help them with other parts of the journey. Making the model work commercially, for the local property experts, is an important part of the future for the onliners.

{audio:0:50:34} How do you see that changing as Purplebricks change the price? I see they’re rolling out a new pricing structure with a lower fixed up front and then a higher total fee on success.

{audio:0:50:53} What was really interesting is that Yopa, the second largest onliner, introduced a no sale, no fee option as part of the defense mechanism to the incumbent’s response of, “Look, you don’t want to pay up front, do you?” to the customer. My view on it was that we’ve chosen to have a differentiated model that can clearly articulate the kind of customers that it’s suited to and that was a big part of the success of Purplebricks. I think, quite rightly, any of those online environments that are now evolving their models, they will test and learn whether the model that they’ve got is now fit for purpose and optimal and Purplebricks are doing that at the moment but my understanding of their core offering is it remains a pay up front model.

{audio:0:51:52} My gut view is that by having clarity for the consumer and being up front with the price, that’s got value, the brand doesn’t need to be ashamed that some people pay and they don’t sell in the timescale that they want because it’s a lifetime fee anyway and they can come back to market. The brand just needs to be very, very clear that that’s what the consumers are doing. I always had a view that if a consumer wasn’t certain and they did want to test the market, that’s cool. You don’t suit our model, you should go and use a no sale, no fee agent. As long as the brand is transparent in that environment, Purplebricks’ differentiation that they’ve got within the model that exists today, is a differentiation that’s won for them today and should be capable of getting them to their stated ambition of 10% market share.

{audio:0:52:49} What do you think is the optimal pricing structure for Purplebricks?

{audio:0:52:55} I think the pay anyway element of their model means that the price point needs to be attractive. If you just deal with the economics of no sale, no fee, 50% of properties sell and 50% don’t, half of the typical estate agent fee in the UK gives you a sense of where the broad mathematics will position you. The average fee in the UK is between £2,500 and £3,000. I think there’s opportunity in London for Purplebricks to compete in a different way. It’s interesting because real estate is more expensive in London. There is a different approach from the incumbents who are more particular about their brand differentiation for fee, but actually, digital enablement absolutely wins with your typical consumer in London and the brand undershoots it. Online estate agency undershoots its way in London, so it will be really interesting to see how they grow in that marketplace. I think that’s something they’re already doing much better within London.

{audio:0:54:11} Outside of London, that £2,500 to £3,000, thinking around 50% of those numbers is a reasonably sensible way to think about what the economics allows the brand to do.

{audio:0:54:24} Would you do that up front though? Let’s say £1,500 per instruction total for the listing, or does it include everything?

{audio:0:54:36} That’s just the listing, from my perspective.

{audio:0:54:38} Would you put £500 up front or the model doesn’t work with £500 up front?

{audio:0:54:44} I personally would stick with the old amount up front. It’s nice and simple, it’s differentiated and I don’t mind that the incumbent’s making a song and dance about the fact my model’s different. My model’s different because I’ve listened to consumers and I’m presenting you with a choice very clearly as to the type of consumer that it wins for.

Purplebricks: Disrupting UK Real Estate Agencies

Comparison of the real estate transaction in the 1990s versus today

How the portals have degraded the consumer experience for real estate agencies

Drivers of traditional agency fee degradation

The buyer and seller user experience and journey on Purplebricks

The economics of a unit instruction on Purplebricks

Potential for Purplebricks to increase the instruction fee and ancillary revenue

Purplebricks: Disrupting UK Real Estate Agencies

Former UK Chief Executive Officer at Purplebricks

inpractise.com/articles/purp-uk-online-real-estate-agency

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Executive Bio

Lee Wainwright

Former UK Chief Executive Officer at Purplebricks

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